Kinks in the Water Hose - One Man's Opinion on the Economy and Current Real Estate Market

When I was a kid, I used to spend a lot of time at my grandparents' house in east Dallas.  Actually, it was a smallish duplex with an enormous lot and a detached garage.  My grandfather had a large garden out back, along with some peach trees in the sideyard, and I used to help him with watering sometimes.  I would always start out with good intentions, but inevitably it would devolve into me bending the hose and cutting off the water supply, then uncrimping it a little bit to spray the water using the pressure that had built up. 

Often, when I was attempting to stretch the hose to get to a faraway patch of grass or the last tree in the line, the water would stop altogether and I would be forced to backtrack and figure out where the problem lay.  Usually, the garden hose was knotted, or bent around the corner of the house too tightly.

Much like that garden hose from thirty (or so) years ago, the real estate market and the economy in general are filled with "kinks" right now:

GAS PRICES - Who could have anticipated the long-reaching effects of higher gas prices?  Groceries cost more, and many people have curtailed their driving habits quite a bit in order to save money.  Gas was about a dollar less per gallon at this time last year, but the lag effect was not being felt yet. 

PRESIDENTIAL ELECTION - I have been in real estate almost twelve years now, so this is my third election season "in the business".  In 2000 and 2004, at least locally, we experienced relatively difficult years leading up to the election date.  Notice that I said "relatively".  The previous election years were a little uncertain, but they weren't coupled with some of the other factors that exist today.  I honestly believe that it doesn't matter who wins the election in November.  Just having it out of the way will allow us to stop thinking about it.

MEDIA - This is a biggie, at least in my humble opinion.  The media has turned its lens on the hurting housing market nationally, and the fact that prices have fallen, again on a national level.  Here in Austin, we saw a 12% increase in prices from 2005 to now, but the national media is simply louder and more universally respected, even though the local guys have a better handle on what is happening.

MORTGAGE CRISIS - Another big one.  I won't assess any blame for this debacle in this post, but I will say that banks are now so skittish about lending money that I recently had a deal delayed for nearly a month with borrowers who had 700+ FICO scores and 20% down.  What!?!  Unfortunately, current buyers are being punished for mistakes made by lending institutions for the past several years.  I won't even delve into the details of the Fannie Mae and Freddie Mac issue here.   

All of the above factors (and more) lead to this last one, which really determines which course things will take:

PERCEPTION - This is the single biggest issue that we must overcome in the real estate and mortgage business.  People are uncertain whom to believe these days.  Will things improve soon?  Will interest rates be higher if I wait? 

Simply put, it is our job and our responsibility to assuage fears for our clients.  Locally and across Texas, things seem to be fine, but people are still putting off their decisions because they perceive that "things are bad right now".  It is most assuredly part of our job decription these days to provide comfort and stability in unsure times.

Believe me, when this perception begins to shift in a positive direction, people will begin to ACT, rather than SIT, and this is when real and substantive change will occur.  I recall after 9/11 that I saw much the same dynamic in play.  Back then, with the exception of the stock market, most underlying economic factors were sound, but people were afraid to act, because of the aftermath of the attacks and the general sense of uncertainty that was pervasive at the time.  When the media began to report positive news again after a few months, the perception began to turn, and (surprise) the market improved dramatically.

Marketing 101 states that "perception is reality".  Never before have I seen this more clearly than in 2008.  In Austin, Texas, our market is actually just fine, but I am still in a constant uphill battle against the national media to convince my local clients to act.  At times, this seems like an almost Sisyphean task.  (In case you are not familiar with Sisyphus, he was the mythical king from Greek mythology who was punished by being forced to roll a boulder up a steep hill, only to watch it roll down to the bottom.  Then, he started all over again.  And so it goes with my clients lately.  I seem to have the same conversation almost daily about how things really are).

Much like the garden hose from my childhood, I know that from my experience there is a pent-up demand building up pressure.  Locally, we have seen rental home vacancy rates drop to 1.5%, which is probably a historic low.  People are unable to sell their homes in other markets, and they are concerned about whether this is a good time to buy.

We may not need to unkink every spot in the hose for things to improve.  Perhaps it will be gas prices alone, or getting beyond the fall election.  Either way, it WILL improve at some point. 

So, are you doing your part to help with consumer confidence when it comes to real estate?  If we don't do it, we certainly can't depend on anyone else to help.

Copyright 2008  Jason Crouch, Austin Real Estate Broker